Sovereign bond sell-off hits sentiment, gold dives below $1500

A global sovereign bond sell-off sent the US 10-year yield to two-week highs.

The 10-year German bund yield eased to -0.585% from above -0.70% at the beginning of this month. The euro held ground above 1.10 against the greenback, but the topside remained limited at 1.1070 ahead of Thursday’s European Central Bank (ECB) meeting.

The US dollar gained against most G10 currencies overnight, except Kiwi. The US stock markets closed flat on Monday on worries that some parts of the US may have stepped into recession.

Gold dived below the $1500 level an ounce, as risk-averse investors appear to be turning to cash on increased cross-asset volatilities.

Asian equities traded mixed. Nikkei (+0.34%) and Topix (+0.58%) edged higher, while Shanghai’s Composite (-0.36%) and ASX 200 (-0.74%) remained on the back foot, after the data showed lower business conditions and confidence in Australia in August as the squeezed Chinese economy continues weighing on the investor sentiment.

But energy stocks rallied 2.45% in Sydney, as oil advanced on news that Saudi’s new energy minister said to back OPEC and its allies’ lower production regime to match the fading global demand.

In China, the consumer price inflation remained unchanged at 2.8% y-o-y in August, versus 2.7% expected by analysts. The resilient consumer price inflation somewhat tamed the dovish expectations regarding the People’s Bank of China’s (PBoC) further stimulus plans. But the factory gate prices slumped 0.8% in year to August, the most in three years, versus -0.3% printed a month earlier.

But Chinese officials have a bigger problem on their agenda this week. China’s pork crisis continues making the headlines before the Mid-Autumn festival, as the scarcity could further dampen the mood at festivities at the zodiac year of the Pig.

FTSE futures (-0.03%) traded on the sidelines.

The FTSE is expected to open 11 points lower at 7225p. The fading positive momentum in Britain’s blue-chip index is partly explained by a stronger British pound. The 20-day negative correlation between the sterling and the FTSE has jumped up to 70% last month, as the pound tanked on no-deal Brexit worries. Although the negative correlation tends to ease with improved sterling, the FTSE could challenge the 7200p mark, the 200-day moving average, on further pound recovery and mixed risk appetite across the global equity markets.

Johnson surrenders after final defeat to throw an early election

Things get bizarre in the UK. After consecutive defeats to throw a snap election, having failed to convince Members of Parliament to leave the EU without a deal by October 31st and having lost 21 members on the way, UK Prime Minister Boris Johnson finally surrendered. ‘I will go to that crucial summit in Brussels on Oct. 17, and no matter how many devices this Parliament invents to tie my hands, I will strive to get an agreement in the national interest’, he said.

Meanwhile, a bill ruling out a no-deal Brexit by October 31st became a law now and Parliament is suspended until 14th of October. In fact, the UK politics are not at their best to negotiate a healthy deal under the current circumstances. Hence, the chances are that there will be at least three-month delay in Brexit, unless an agreement is reached by October 19th. On the other hand, the Liberal Democrats ask revoking the Article 50 and back another Brexit referendum.

Cable settled above the 1.2290/1.2295, the 50-day moving average and the minor 23.6% Fibonacci retracement on March – September decline. Released on Monday, the industrial and manufacturing production surprised on the upside, as the GDP grew 0.3% in July, reverting a part of recession worries in the UK.

Due today, the British unemployment rate is expected to have remained steady at 3.9% in three months to July, with a stable average earnings growth of 3.7%. But it is worth keeping an eye on the Office of National Statistics employment figures. A consensus of analyst expectations suggest that 55’000 jobs were added in July versus 115’000 printed a month earlier.

The pound has potential to extend recovery toward the 1.25 mark on fading worries of an imminent no-deal Brexit. From a technical perspective, this is also the major 38.2% Fibonacci resistance, if cleared, the sterling will step in the medium-term bullish consolidation zone against the US dollar.

Ford cut to junk

Moody’s downgraded Ford to the highest junk rating (Ba1) on low cash flow and profit margin expectations over the next two years. The company’s profit margin fell below 8% from 10% in 2016, as earnings deteriorated despite favourable market conditions for the auto industry.

Still, Ford has investment grade rating (BBB) at Fitch and S&P, despite a negative outlook. This means that most investors should not hurry to jump ship just yet. For now, more than half of analysts surveyed by Bloomberg remain on hold and 38% recommend buying the stock with a twelve-month average price target of $10.97 (current price at $9.54). Less than 5% advise selling the stock.

Opening calls

FTSE to open 11 points lower at 7225

DAX to open 14 points lower at 12212

This information has been prepared by London Capital Group Ltd (LCG). The material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. LCG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
Spread betting and CFD trading carry a high level of risk to your capital and can result in losses that exceed your initial deposit. They may not be suitable for everyone, so please ensure that you fully understand the risks involved.

GBP/USD hits a 6-week high above 1.24. The DUP dismissed reports that it would accept special treatment for the province as a solution to the backstop. The EU is ready to grant a Brexit extension as Johnson faces growing criticism.

XRP is in a borderline situation and with little room for doubt. Bitcoin demonstrates its power and positions itself as the emerging leader. Ethereum is in an intermediate situation, far from risk but also from opportunity.

Note: All information on this page is subject to change. The use of this website constitutes acceptance of our user agreement. Please read our privacy policy and legal disclaimer.

Trading foreign exchange on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading and seek advice from an independent financial advisor if you have any doubts.

Opinions expressed at FXStreet are those of the individual authors and do not necessarily represent the opinion of FXStreet or its management. FXStreet has not verified the accuracy or basis-in-fact of any claim or statement made by any independent author: errors and Omissions may occur.Any opinions, news, research, analyses, prices or other information contained on this website, by FXStreet, its employees, partners or contributors, is provided as general market commentary and does not constitute investment advice. FXStreet will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.